THE NATION.

Home heating bills are expected to rise

BALTIMORE — Just as consumers are recovering from a summer of sticker shock at the gas pump, more high energy costs are on the way -- this time for home heating.

The heating season won't get under way for at least a few more weeks, but already suppliers are warning that sharply higher wholesale costs will push prices beyond last winter's biting bills. Residential customers, experts say, can expect to pay 10 to 15 percent more, thanks to soaring worldwide crude oil prices and a continuing crunch of natural gas supplies in the U.S.

"There's been no good news for the last two and a half years," said David Shinnebarger, chief marketing officer for Star Gas Partnership LLP of Stamford, Conn., which owns Petro, a home heating oil company that serves customers from Massachusetts to Virginia.

"A lot of customers are apprehensive about their heating oil prices for this winter, driven in large part by awareness of the energy crunch," Shinnebarger said. "They've never seen a market like this where three years in a row, wholesale costs are up so much. It's causing consumers to be very nervous and shop around."

In a recent outlook, the U.S. Energy Department said natural gas-heated households can expect an increase of 15 percent in heating costs. Heating oil is expected to climb to an average $1.50 per gallon in the northwestern U.S. from an average $1.36 per gallon last winter, according to the department's Energy Information Administration. In Maryland, heating oil prices, which averaged $1.27 this time last year, are now hovering at an average $1.80 per gallon, according to the state's Office of Home Energy Programs.

"This has been the first time in the last 10 to 15 years that the price of oil has been up to over $1.50 [per gallon] starting out in the season, and it hasn't dropped below 50 degrees," said Xavier Reed, owner of Can Do Fuel Oil Co. in Baltimore. "It's going to be tough on people."

Natural gas customers of Baltimore Gas & Electric should expect, on average, an increase of $40 to $65 for the November through March heating season, about a 10 percent increase, said Laurie Duhan, BGE director, gas pricing and tariffs. Last year, a typical customer paid just under $610 for gas service during that period. This year, assuming a winter of normal temperatures, the bill for the five months is expected to range from $650 to $675.

The company's price, which averaged 72 cents per therm last winter, is expected to be in the low 80s cents per therm range.

"Almost the entire change is because of the change in our cost of natural gas," Duhan said.

The wholesale price of natural gas has risen 20 percent from last winter and supplies of natural gas remain tight, partly because of the increased use of natural gas to produce electricity. That's hampering the utility's ability to buy and store cheaper gas during the summer, Duhan said.

For heating oil, "the big change is that the prices of crude oil are so much higher this year than last year," said Neil Gamson, an economist with the EIA. "That explains almost all of it."

From October 2003 through March 2004, crude oil averaged $33 a barrel, Gamson said. But he is expecting crude oil prices to average $41 a barrel this winter.

"That's almost $8 a barrel difference, and that translates into 19 cents a gallon" increase, he said.

Consumers won't face quite the increases of the crude oil market because stocks of distillate fuel oil, used to make heating oil, remain adequate for the winter, Gamson said.

But, that's assuming a winter of normal temperatures.

"If it's colder than normal, things could get worse," he said.

Consumers who buy heating oil on an as-needed basis will find themselves at the mercy of the market prices, dealers said.

Some dealers are still offering the "price protection" service plans they have offered during less volatile markets. Those plans can include a fixed price for a certain period of time or a price cap, which would allow consumers to benefit from a drop in prices but guarantee a limit.

Rick Phelps, president of Carroll Independent Fuel, which serves customers throughout Maryland, says his company is encouraging customers to lock into a plan and is seeing more choose that option.

"The good thing about a cap is if prices fall, they're not locked in at a higher number, and they have the security that they'll never exceed the cap," Phelps said.

Despite the risk that prices will continue to rise, the company can offer those options because "we go out and hedge ourselves," he said. "If we sell [oil] at a fixed or capped rate, we will buy under the same type of program from my suppliers."

Shinnebarger said he is advising customers to take the fixed-price option, and many are choosing to lock in now, at $1.649 for new accounts. For those plans, the company buys the oil in advance.

Under the capped price plan, the company enters the hedge market and pays a 13-cent per gallon premium, which is then passed on to the consumer.

"Based on world events we believe wholesale prices are not going to come down this year," he said.

Other dealers said they have no choice this year but to forego the fixed or capped plans of years past to ensure they can meet their overhead costs.

"Nobody will be able to lock down the price because the price will change so dramatically," said Reed.